Stirrings in the Nether Regions of the Metals Space – Vanadium, Tantalum and Tungsten

In nature there are events where masses of animals or insects suddenly go on the move and as if directed by a higher force organize themselves and surge in a particular direction whether they be birds, or ants or wildebeest. Investors in metals and miners seem to be driven by a higher imperative also.

Last year saw precious metals, many of the bigger base metals and some of the specialty metals (e.g. Lithium, Cobalt, Tin) rise to the occasion after a long somnolence. However there were some notable exceptions. Rare Earths, Uranium and a swathe of less chattered about metals remained mired in the miseries that beset the sector since 2011 (and in some cases 2008). However in recent weeks base metals have gotten a second wind led by copper and zinc and now a group of “other” specialty metals, particularly in the alloy space have started to lift. Here we focus on three of them.

Vanadium

We won’t dwell on this metal too strongly as we covered it late last month. In the process we let loose a flurry of fans of different Vanadium wannabes, some on or off the radar until now. We had forgotten to mention in our piece that less obvious companies like Western Uranium Corporation (CSE: WUC | OTCQX: WSTRF) were potential Vanadium players due to the high proportion of Vanadium in their mineralogy. In fact the proportion is so high that it now looks like Vanadium will be the tail that wags the dog at WUC. Time for a name change, methinks..

Meanwhile other names came to attention like the AIM-listed South African player, Bushveld Minerals that bought Evraz’s producing Vanadium mine in that country, and Prophecy Development that picked up the Gibellini asset from the stricken American Vanadium.

Tantalum

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Tantalum is usually put in the too hard basket due to it being a conflict mineral when in fact that should be seen as an opportunity rather than a negative.

By means of a refresher on this metal, Tantalum is one of the refractory metals, which are widely used as minor components in alloys. The chemical inertness of tantalum makes it a valuable substance for laboratory equipment and a substitute for platinum. Tantalum is also used for medical implants and bone repair. Its main use today is in tantalum capacitors in electronic equipment such as mobile phones, DVD players, video game systems and computers.

As the chart below shows its price was long dormant then shot to prominence well after the Mining Supercycle was past its peak and then slumped again.

Indeed it could be argued that this was the Dodds-Frank effect at work making metal sourced from non-conflict locations more expensive…. until it wasn’t. The slump put paid to the ambitions of some of the listed Tantalum wannabes and they headed in other directions. Commerce Resources is a good example of a Tantalum story that digressed into Rare Earths (and interestingly is veering back towards Tantalum again).

Pricing is somewhat opaque but it was jungle drums reporting that producers in Burundi were seeing hefty week-on-week price rises that piqued our interest again. What we have been able to establish is that 30% Tantalum concentrate out of China is up 24.4% on the 360 day basis. This is probably a more significant indicator than the reported move of the same period of only 9.9% in Tantalum metal for US delivery.

Tantalum is one of the rarest metals in the earth’s crust it would not surprise us to see this metal start to have its day in the sun again soon.

Tungsten

This metal was looking like the wallflower at the specialty metals dance. Most other things had recovered slightly during 2016 but Tungsten was, to quote the old song, lying like a “dead skunk in the middle of the road, stinking to high heaven”. It was somewhat understandable though with demand largely coming from the stable machine tool market and the very depressed drill-bit activity in the oil & gas and mining spaces. The former was trending slightly up, the mining sector meanwhile was merely a twinkle in the eye for prospective recovery in 2016 and the oil & gas sector was suffering the hangover from hell from years of hyperactivity.

Source: Almonty Industries

As the chart above shows the gain thus far this year has been 20% which is respectable in anyone’s book but still pales compared to the type of moves that other basic materials like Manganese and Chromite managed during the past 18 months. Tungsten has been one of the few spaces that has seen consolidation with Almonty Industries vacuuming up a number of competing or potentially competing players. Meanwhile North American Tungsten went bankrupt (as did Malaga) and Wolf Minerals walks across hot coals in its search for profitability.

The dilemma for the end users is that new projects that are advanced are rare indeed and those on the drawing boards like Sisson and Mactung are eye-wateringly gigantic. Most other juniors have wilted on the vine during the dry period so it will need prices to continue rising and cross the $300 per MTU level (and hold there) before investors have much choice in the space.

Conclusion

The tide that swept back into the shallows of the mining market in 2016 lifted most boats but not all. Some of the gains were massive and have been augmented this year but some were left relatively becalmed and some were downright stranded (e.g. Uranium and Tungsten). A belated second tide has arrived and now lifted the three metals here while also taking Zinc above the $1.30 per lb mark and lifting copper to nearly $3 per lb. Precious metals mavens are dismayed that the dirty metals are having their day in the sun while their favorites are mired in shallows and in miseries (deservedly so in our view).

This is still early days of the recovery though. All of the three metals here are well off their highs of the Mining Supercycle. All three are also “suffering” from years of underinvestment with development pipelines that are as dry as the street gutters in Timbuktoo. This produces the same scenario of potentially constrained supply. Also the supply is patchy with North American production of all three minerals being small to non-existent.

So hopefully the move in recent weeks is a seachange that will continue and bring the metals to levels at which decent projects get dusted off and serious personalities enter the space.